Geopolitical Developments and Financial Markets: How Are Impacts Transmitted to Investors?

Financial markets do not react to geopolitical developments as standalone events, but rather as signals that may reshape investor expectations regarding the future course of the economy.

When a potential shift looms on the horizon concerning the pace of growth, inflation levels, trade flows, or the trajectory of interest rates, investors proactively reprice these possibilities.

This new anticipation is then directly reflected in asset prices. ...